Are you in need of a Settlement Agreement

Are you in need of a Settlement Agreement?

In many instances Business Owners and businesses are not familiar with the term ‘Settlement Agreement’, also known as a ‘ Compromise Agreement’, in any event, many business owners may not have had the need to use them, that is until 2020, where Businesses found themselves in the unfortunate position of having to make roles redundant in order to survive the ongoing economic struggles caused by Covid.

Settlement Agreements have become more commonplace, and we assist clients with these for varying reasons, in our article today we are going to explain what they are, how you can use them in your workplace, and above all get things right.


Just what is a Settlement Agreement?

To simplify this, a Settlement Agreement is a legally binding agreement either during or following the termination of employment, which brings the employment to an end.

It is recognised by statute and is the only way you can validly “contract out” of your employment law rights.

It usually provides for a severance payment; in return for which the Employee agrees not to pursue any claim or grievance they may have in an employment tribunal.


The Implications of Breach of Contract

Firstly, I want to just cast your minds back to March 2020 why, you may ask?, it is because I want to simplify, and provide you with an example of ‘breach of contract’, so let’s go back to when the first UK lockdown was announced, information was scarce in relation to the legal impact of the pandemic on Employers.

So many Employers understandably did not have all the answers, it took some time before specific questions were answered in relation to the rules of furloughing, how the scheme worked, holiday pay, and how the scheme affected existing contractual agreements with Employees. As a result of this, many employers ‘breached contracts’ with Employees, and in many cases, this was because they did not have a legal representative on hand to provide advice.

It is irrelevant whether these breaches were of course accidental rather than wilful and did not negate the Employee from making a claim against the Employer.

It is safe to say the spike in tribunal claims and many of these on the back of Covid have been unprecedented, with claims arising from and due to discrimination, furloughing, and the use of the scheme, payments, and of course redundancy.


What is the role of a Settlement Agreement where a breach may have occurred?

A Settlement Agreement is not the same as redundancy but is usually or can be undertaken as part of a redundancy process and it serves to protect you the Employer from claims for Breach of Contract being made against you later down the line.

A Settlement Agreement can also be used where you wish to terminate a position without the correct notice period, to protect against future claims.


What is the role of a Settlement Agreement where a breach hasn’t occurred?

A growing number of Businesses are opting to couple their redundancy or terminations process with Settlement Agreements even where no obvious breach has occurred and are doing so to protect themselves, in case something was missed which could result in a claim being brought against them.

This might be especially wise if you are an SME and you have been handling Employee contracts and legal processes independently without expert advice, and where it is likely that contractual breaches have occurred that you are not yet aware of, due to legal inexperience.

If you are making multiple redundancies as an Employer, it is certainly a logical approach that will work out cheaper in the long term than paying for specific legal advice and representation on a case-by-case basis after the redundancies have been made.

They can and are used in many instances of capability (ill health) (and the use of settlement agreements) and are a way in which to bring about the best solution for both parties.



While this article has given you enough of an overview of what a Settlement Agreement is, this is a complex topic, it is impossible to cover every aspect of them in a single article.

If you need to manage a breach of contract, have an issue with an Employee, and need any extra help or support through the process, we at HR and You Ltd are experienced in our understanding of Settlement Agreements, do not hesitate to contact us via email, [email protected], or phone, 0333 006 9489, for a no-obligation chat to find out whether our services are right for you.






This article contains a general overview of information only. It does not constitute, and should not be relied upon, as legal advice. You should consult a suitably qualified lawyer on any specific legal problem or matter.

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